Thursday, May 19, 2011

Gold Slumps Back On Climbing Greenback

Gold spent last night and the first couple of hours of this morning in the high 1490s, but a climbing greenback pushed gold down to the $1,490 level and, for a time, below. Sinking below $1,495 by 2 AM ET, and fluctuating around it for the next hour and a half, the metal skidded at 3:30 and then fluctuated around $1,490. Its overnight low of $1,487.10 was made at 5:30. Recovering later, it still stayed stuck below $1,495. As of 8:12, the spot price was $1,493.10 for a drop of $3.80 on the day. The KitcoGold Index attributed -$4.25 to predominant selling and +$0.45 to a weakening greenback.

The U.S. Dollar Index ran up and slid down, but to little avail. Declining from 75.35, it sunk below 75.15 just before 11:00. It then got traction and ran up all the way back before pausing to catch its breath. It then ran to 75.5. Another slide-back preceded it peaking at 75.56. Afterwards, it lost strength and skidded back to below 75.25. Again climbing, it slipped back before reaching 75.45. As of 8:22, it was beginning to recover again at 75.35.

“Inflation expectations have been easing lately a bit,” Dan Smith, an analyst at Standard Chartered Plc in London, said today by phone. “Gold is looking for another reason to break higher. It lacks a trigger.”

Those expectations were gauged by 10-year Treasury Inflation-Protected Securities. The rate premium for fixed-rate Treasuries versus TIPS dropped to 2.36%, indicating an expectation for inflation to average that figure for the next ten years.

The near-term outlook for the yellow metal has been foggy in recent sessions, with the market's trading range relatively narrow as participants consider whether the market is ready for another push higher without a further correction in prices.

"We remain bullish on the market, however it seems some people are waiting for a bit more of a pullback before they act," a trader said.

The World Gold Council pinpointed Asia as the region where demand was exploding, although demand is increasing in North America.

U.S. jobless claims dropped to 409,000 from last week's report's 438,000; the latter figure was revised upwards. The drop was larger than expectations. Gold sold off as the pit session began, sinking to $1,490 before getting a bit of a boost from the jobless-claims news. That boost didn't last, as it sold down again to an even lower level. As of 8:43, the spot price was $1,489.90 for a drop of $7.00 on the day. The Kitco Gold Index split the loss into -$5.80 for predominant selling and -$1.20 for a strengthening greenback. The U.S. Dollar Index continued to recover, passing 75.4 again. As of 8:46, it was still climbing at 75.43.

Gold didn't have enough strength to seriously challenge $1,500, and its drop made for some disappointment, but its decline so far hasn't been all that bad. $1,490 seems to be holding, and it may continue to hold in today's regular trading. If the greenback continues to gain strength, though, then the metal will have a rough time.

Originally, The Gold Bubble was a perch for me to watch what I pegged as a nascent gold bubble - or, to be less controversial, the third stage of a long-term gold bull market.

As time went on, I drifted towards commentary on gold and the greenback, plus the interrelation between the two. The rest of the posts featured items about gold that I thought were interesting. I ended up diverging from the theme that the title promised.

So, I've reactivated the old blog under a different name. "The Gold Watcher" is a more accurate title for the blog that The Gold Bubble became.

The Enter Stage Right article that kicked off the predecessor blog contains a fuller explanation of my reasoning about a gold bubble: it's here. A sequel is here.

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Disclaimer

Although I try to compensate, I do have opinions that are almost certainly influenced by what I've done with my own money. For the record, I am long gold-exploration stocks. On the odd chance I mention one that I own, I'll disclose it fully. I don't own any physical gold, nor do I own any producers or any well-known explorers.

Also, I must emphasize that I am not a registered investment advisor, and that I am not licensed to dispense investment advice in my jurisdiction of residence (Ontario, Canada). Consequently, this is not an investment-advice blog. It shouldn't be taken as such. I cannot provide any actionable material in the standard sense of the term; if you're intrigued by anything here, you'll have to see to your own trigger.

In addition to the standard boilerplate caution for you to do your own due diligence should you invest or speculate, I'd like to add a special caution: gold, by far, is the asset class that elicits the most emotions. A solid consensus of experieced investment professionals considers emotionality to be a performance-hobbler. In addition to doing your own research, and/or using a licensed professional to do so, I suggest that you watch yourself.